On its front page, the Wall Street Journal (3/10, A1, Rockoff) reports, "Merck & Co. agreed to buy rival Schering-Plough Corp. for $41.1 billion, in the latest attempt by pharmaceutical companies to diversify as they seek to weather the recession and cope with the unpredictability of drug development." According to the Journal, "If the Merck deal closes as planned in the fourth quarter, it would become a sprawling health giant, with $46.9 billion in annual sales across 140 countries, and products ranging from diabetes drug Januvia [sitagliptin] to Dr. Scholl's foot supports. It would rank fifth in the industry in market capitalization behind the enlarged Pfizer, J&J, Roche, and Novartis AG."
Analysts suggest that "for Merck, the Schering deal may actually be a good opportunity to restock its medicine chest," the New York Times (3/10, B1, Singer) adds on the cover of its Business Day section. "Merck's former blockbuster bone drug Fosamax [alendronate sodium] has gone generic, and in a few years the same thing will happen to its best-selling allergy and asthma drug Singulair [montelukast sodium]. The merger gives it access to successful brand-name Schering products with much longer patents, like the prescription allergy spray Nasonex [mometasone furoate monohydrate]." In addition, "Merck could capitalize on Schering's investments in promising biotechnology drugs."
According to Merck Chief Executive Officer Richard Clark, the acquisition "between the two New Jersey-based companies 'is about the science,'" Bloomberg News (3/10, Pettypiece) adds. "Schering-Plough has drugs in late- stage testing that may top $6 billion in annual sales, analysts have said." The purchase "will double the number of medicines Merck has in final stages of human tests to 18. With the deal, Merck is considering the sale of an animal health partnership with Sanofi- Aventis SA, according to people familiar with the transaction. ... Merck also gets Schering-Plough's consumer products, including the allergy medicine Claritin [loratadine]." Bloomberg News notes that "the transaction, the largest in Merck's 122-year history, comes six weeks after Pfizer Inc. agreed to buy Wyeth for $62 billion and as Roche Holding AG tries to conclude a $45.7 billion takeover of Genentech Inc." The deal "may intensify pressure on other companies, including Bristol-Myers Squibb Co., to combine research as big-selling products lose patent protection." The AP (3/10) and the Wall Street Journal (3/9) Health Blog also covered the story.
Bristol-Myers may be the next drugmaker to be bought. Bloomberg News (3/10, Randall) reports, "Bristol-Myers Squibb Co. may be the next drugmaker to be bought after Merck & Co.'s $41.1 billion purchase of Schering-Plough Corp. and Pfizer's $68 billion deal with Wyeth pressure companies to consolidate." David Moskowitz, an analyst with Caris & Co., told Bloomberg that "Bristol-Myers is next." The company's shares "rose 3.6 percent in New York trading on speculation the drugmaker may be a target of French rival Sanofi-Aventis SA."
In a separate story, Bloomberg News (3/10, Kelley) added that "Bristol-Myers may be a potential merger candidate for...AstraZeneca PLC, its partner on a diabetes drug, said Mirabaud analyst Nick Turner." London-based "AstraZeneca climbed 76 pence, or 3.5 percent, to 2,223 pence in London trading, the most since Jan. 23, on speculation Bristol-Myers would make a bid."
Another wave of acquisitions likely. The Wall Street Journal (3/10, A12, Johnson, Winslow) reports, "Drugmakers have begun a frenzied consolidation drive that is redrawing the industry landscape." The deals are "being driven by the knowledge that the big companies' pipelines aren't producing enough new moneymakers to keep growth going when major products lose patent protection over the next couple of years. As a result, the drug giants are looking to consolidations that will cut costs by combining research and sales efforts and eliminating other overlaps." According to the Journal, "Eli Lilly & Co., Bristol-Myers Squibb Co., AstraZeneca PLC, Sanofi-Aventis SA, and Johnson & Johnson seem most likely to be involved in the next wave of consolidation, analysts say. Factors including existing partnerships, the timing of patent expirations and how well drugmakers can absorb multiple acquisitions could affect who will be a buyer and who will be a seller."
Golimumab agreement could complicate Merck's purchase of Schering-Plough. The Wall Street Journal (3/10, Loftus) reports, Johnson & Johnson and Schering-Plough co-market the anti-inflammatory treatment Remicade (infliximab) which "generated $2.1 billion in sales for Schering-Plough last year, making it an attractive part of the acquisition for Merck." Johnson & Johnson is responsible for the "US marketing [of Remicade], and Schering sells it outside the US. The agreement, which dates to the 1990s, covers a new drug, golimumab. ... As part of the partnership, J&J has the opportunity to acquire full rights to the drugs if Schering-Plough were to be taken over." Merck and Schering-Plough "have structured the...takeover as a 'reverse merger,' under which Schering-Plough would technically be the surviving corporation, even though it would have Merck's name and be controlled by Merck shareholders and management." Executives for Merck "say the acquisition of Schering-Plough won't trigger the change-of-control provision in the J&J/Schering marketing agreement for Remicade and golimumab. A J&J spokesman declined to comment on the matter."
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